1 answer

Swifty Company sells 8% bonds having a maturity value of $3,000,000 for $2,772,550. The bonds are...

Question:

Swifty Company sells 8% bonds having a maturity value of $3,000,000 for $2,772,550. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1.

The effective-interest rate?


Answers

Effective annual Interest rate = 10%
Workings:
Initial Investment (P.V) = $ 27,72,550
Face Value = $ 30,00,000
Interest rate (r) = 8%
PMT ($3000000 X 8%) = $   2,40,000
Period (n) = 5 year
Under continuous compounding:
Effective annual Interest rate = =Rate(5,240000,-2772550,3000000,0)
= 10%
.

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